The Charleston Company Is a Relatively Small, Privately Owned Firm

question 43

Multiple Choice

The Charleston Company is a relatively small, privately owned firm. Last year, the company had an after-tax income of $15,000 and 10,000 shares were outstanding. The owners were trying to determine the market value for the stock prior to taking the company public. A similar firm, which is publicly traded, had a price/earnings ratio of 5.0. Using only the information given, the market value of one share of Charleston's stock is estimated as:

• A)$10.00.
• B)$7.50.
• C)$5.00.
• D)$2.50.
• E)$1.50.

---

Definitions:

Simple Linear Regression

A statistical method that models the relationship between a dependent variable and one independent variable by fitting a linear equation to the observed data.

Response Variable

The variable in a study or experiment that is assumed to depend on or be affected by changes in another variable (often called the independent variable).

Explanatory Variable

A variable in a statistical model that is believed to cause or explain changes in the response variable.

SST

Total sum of squares; a term used in statistics to describe the total variance in a dataset.